Agarwal Industrial's (NSE:AGARIND) Earnings Are Weaker Than They Seem

Agarwal Industrial Corporation Limited (NSE:AGARIND) just reported some strong earnings, and the market rewarded them with a positive share price move. However, we think that shareholders may be missing some concerning details in the numbers.

View our latest analysis for Agarwal Industrial

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Agarwal Industrial expanded the number of shares on issue by 12% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Agarwal Industrial's historical EPS growth by clicking on this link.

A Look At The Impact Of Agarwal Industrial's Dilution on Its Earnings Per Share (EPS).

Agarwal Industrial has improved its profit over the last three years, with an annualized gain of 295% in that time. And the 59% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 59% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Agarwal Industrial shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Agarwal Industrial.

Our Take On Agarwal Industrial's Profit Performance

Agarwal Industrial shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Agarwal Industrial's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 5 warning signs for Agarwal Industrial you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Agarwal Industrial's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

If you’re looking to trade Agarwal Industrial, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.